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Saturday 24th October 2020
Hi Friend,
DIY Leads Retail Rally ...
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| Fashion Clothing Slips ...
Retail sales were up by almost 5% in September. Exclude automotive fuel and volumes increased by 6.4% year on year. DIY leads the retail rally. DIY sales were up by 27%, sales of flowers, plants and seeds, increased by 30%.
Working from home is boosting productivity, in households at least. "Don't just sit there do something", the cry. Household good sales were up by 10%, carpet sales were up by 50%. Take a break? Sneak into the bedroom and read a book. Book sales were up by 14%.
Losers in the retail rally were fashion clothing, down 14%. Computers and tele-comm sales were down by 40%. Thinking of music and movies, then stream again, traditional outlet sales were down by 9%.
This week Gap announced the possible closure of outlets in Europe, as part of a world wide review. This month, John Lewis announced a retail shake up which will see the closure of some stores and a focus on on line activity. Online sales are expected to rise to 70% of JLP sales this year. On line sales in Waitrose may increase to 20% of all sales by the end of next year.
Retailers are shrinking retail footprints as online penetration increases. In September, online sales increased by over 50% accounting for 28% of all retail transactions. Online food sales increased by 12%, accounting for just over 10% of all food sales.
Shopping habits have now been transformed by the lock-down, especially in food. Morrisons doubled delivery capacity in the first six months of the year. Tesco, Sainsbury's and Asda followed suit. Capacity is expected to double again within two years. The pressure on logistics is intense. Distribution centres are now the hot property in property.
Will the retail boom continue, as the lock down measures take effect? Consumer confidence slipped this month according to the latest GfK data. Fears of job losses will overhang spending as the furlough scheme ends this month. The Chancellor will be forced to step up his spending plans yet again, to support growth through the Bleak Mid Winter Plan ...
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| Borrowing Hits £200 Billion ...
Government borrowing in the first six months of the year, increased to £208 billion. That's an increase of £175 billion on prior year. Total debt increased to £2.1 trillion at the end of September, that's 104% of GDP.
In the first six months of the year, the Debt Management Office issued £306 billion of gilts. Net of redemption, new gilt issuance totaled £240 billion. So how was that funded?
The Bank of England purchased some £268 billion of gilts over the period. The Old Lady was forced to step in as the "buyer of last resort". The pretense of QE abandoned, the minutes of the MPC meeting now openly talk of the "purchase of government bonds". According to Andrew Bailey, Governor of the Bank of England, "the government would have struggled to fund itself" without central bank intervention.
In the current financial year, markets expect total borrowing to increase to £325 billion. The level of debt could increase to £2.5 trillion by the end of the next financial year. Central Bank holdings may increase to £1 trillion to finance the deficit. The process of "Dire Straits Economics", that's "money for nothing, gilts for free", is expected to continue.
For the moment, markets are unconcerned. Moody's may have lowered the UK credit rating from Aa2 to AA3 this month but Sterling closed higher against the Dollar, at $1.3029. More spending is expected as the "Fears for Tiers" spread.
The Chancellor was forced to announce a further support package for business this week, the fourth in as many months. Criticism of the end of the furlough scheme mounted. The chancellor was obliged to expand the Job Support Scheme. The new plan will pay a larger share of workers' wages, with more money for the self employed and grants for businesses, forced to close in areas affected by lock down measures.
The latest data suggests the recovery is still intact. For the year as a whole the economy is expected to contract by 10% with growth of 6.5% to follow in 2021. The big question is just how many jobs will be lost by the end of the year. The latest offerings from Treasury may have little impact over the next few months ...
That's all for this week! Have a great, safe, week-end ... Hands, Face and Space ...
John
Don't forget you can now listen the The Saturday Economist Live as a weekly Podcast. The TSEL monthly review will be available on our media channel at the end of the month.
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